The Bank of England includes as one of its ‘conditioning assumptions’ in its forecasts today that the Bank Rate – the interest rate that is the benchmark for all rates – becomes negative for the first time in history next year, at minus 0.1 per cent.
It describes a world in which banks are charged for not lending to us and we are charged for saving. And it is one manifestation of the desperate economic scarring caused by the virus.
Another striking characteristic of today’s Bank of England projections is that UK GDP, or national income, is set to shrink by 11 per cent for the whole of 2020 – a record. We are losing more than one in every ten pounds of our income, one of the worst performances in the world: the fall in US GDP is forecast at ‘just’ 3.75 per cent, the Euro-area shrinkage is 6.75 per cent and the global decline is projected at 5.25 per cent.
Given that the virus is the same virus everywhere, it is difficult to argue that the UK’s policy response to it has been economically optimal, even adjusting for the UK’s disproportionate reliance on services that thrive on the kind of human contact that the virus has made dangerous.
It is not over till it is over, but the combination of excess deaths and excess economic loss in the UK raises big questions for the government.